The United States's long-term issuer and senior unsecured credit rating was cut to Aa1 from Aaa Friday by Moody's Ratings, which changed the outlook on the debt to stable from negative.
Rising debt and interest payment ratios over more than a decade, to levels higher than other nations', prompted the downgrade, Moody's said.
"Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs," the agency said. "We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration. Over the next decade, we expect larger deficits as entitlement spending rises while government revenue remains broadly flat. In turn, persistent, large fiscal deficits will drive the government's debt and interest burden higher. The U.S.' fiscal performance is likely to deteriorate relative to its own past and compared to other highly rated sovereigns."
Calling the U.S. economy "unique," Moody's noted, "it combines very large scale, high average incomes, strong growth potential and a track-record of innovation that supports productivity and GDP growth."
Although short-term GDP is expected to slow "as the economy adjusts to higher tariffs, we do not expect that the U.S.' long-term growth will be significantly affected," Moody's said.
The "dollar's status as the world's dominant reserve currency provides significant credit support to the sovereign," Moody's said. "The credit benefits of the dollar are wide-ranging and provide the extraordinary funding capacity that helps the government finance large annual fiscal deficits and refinance its large debt burden at moderate and relatively predictable costs."
Fitch Ratings and S&P Global Ratings both assign the U.S. AA-plus sovereign ratings.
